National Bank reduces refinancing rate to 9.5% following reduction in inflation

The National Bank of Georgia on Wednesday said its Monetary Policy Committee had decided to decrease the refinancing rate by 0.5 percent, to 9.5 percent, following a “more pronounced” reduction in the domestic inflation rate than anticipated.

The latest inflation data by the National Statistics Office of Georgia showed the consumer price index in November decreased by 0.2 percent compared to the previous month, while the annual inflation rate amounted to 0.1 percent.

• Certain food, household equipment, health costs down, inflation at 0.1% across Georgia in November

The National Bank said domestic as well as external factors, and its tight monetary policy, had “effectively anchored” inflation expectations that continued to decline. 

The Bank said inflation of domestically produced goods had gradually approached the three percent target, registering at 3.8 percent in November. 

The current forecast for 2024 indicates inflation temporarily overshooting its target, primarily driven by base effects, before it gradually aligns with the targeted rate in the medium term”, it said.

Despite the “positive” trends, the central bank also mentioned inflationary risks that concerned  demand-side inflationary pressures caused by economic growth dynamics.

Nevertheless, with the economy having fully rebounded to the pre-pandemic trend, the risk of demand-side inflation remains noteworthy. The NBG is vigilantly monitoring the economic dynamics and stands prepared to implement necessary measures should signs of sustained inflationary pressures emerge”, it said.

The Bank also said despite the current reduction of inflation, the monetary policy rate continued to be maintained at a “relatively elevated level”. 

The NBG added it would continue a gradual normalisation of monetary policy, in alignment with “evolving inflation forecasts”.